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How Business Shapes Law: A Socio-Legal Framework

Much legal scholarship addresses law in terms of norms and incentives that affect business and individual behavior. This Essay reverses the telescope and addresses the mechanisms through which business shapes law. There are two main ways in which business affects law. First, business influences the public institutions (legislatures, administrative bodies and courts) that make and apply law. Second, business creates its own private legal systems, including what is traditionally referred to as lex mercatoria (or private merchant law) and private institutions to enforce it (such as arbitral bodies). These two sources of law, publicly-made and privately-made, interact reciprocally and dynamically. The Essay provides a socio-legal framework for analyzing business’s interactional relationship with law. The Essay argues that to assess the relation of business to law, we must look at three sets of institutional interactions: the interaction among public institutions (legislative, administrative and judicial processes), in each of which business plays a critical role; the interaction of national and transnational institutional processes; and the interaction among these public institutional processes and parallel private rule-making, administrative and dispute settlement mechanisms that business creates. The dynamic, reciprocal interaction of public and private legal systems constitutes the legal field in which economic activity takes place. It is a particularly important time to engage in such analysis in light of the proliferation of privately-made legal systems, including transnational ones, affecting our very concept of law.